'Nothing is certain except death and taxes' - Benjamin Franklin, 1789.
As the quote goes, it can only be to your benefit that you learn how taxes work.
Not all income is the same. It is important to know how taxation works in order make the most of your money & taxes. Become familiar with the different types of rebates, allowances, refunds, exemptions, etc.
The main types of income:
Earned income: This is income you earn from trading your time for money. Your Job. Your 9-5.
Interest Income: Income earned from invested money. There is an exclusion on the first R23 800 of interest earned. Above that, interest is treated in the same manner as earned income.
Local Dividends: A share in the profits of a locally listed company. Taxed at a flat rate of R20%
Foreign Dividends: A share in the profits of a foreign-listed company. South Africans pay 15% dividend-withholding tax(DWT) for investing in US-listed companies. We have a tax treaty with them. Other countries may charge foreigners a higher DWT. One such example is the domicile country for the 10X TOTAL WORLD ETF. The DWT is 30%.
Capital Gains: Profit generated from the sale of an asset. Capital Gains Tax(CGT) applies. The general rule is that you need to have held the asset for a minimum of 3 years. There is a R40 000 exclusion on the gains, and a 40% inclusion rate of the gains made. The sum is then treated and taxed as earned income
How much tax would you pay if you earned R1 million in income from each of the different streams, assuming that is the ONLY income you earn?
Winner: Foreign Dividends @ 15% DWT.
Loser: Earned Income.
Conclusion: The most efficient forms of tax require you to expose yourself to market risk and have an investor mindset.
It is important to understand the implication, benefits and trade-offs associated with each income stream before making decisions that will impact your finances.
I hope this helps you structure your finances and investment portfolio more efficiently!
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